An investment manager based in Germany hedges a portfolio of UK gilts with a 3-month forward contract.

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An investment manager based in Germany hedges a portfolio of UK gilts with a 3-month forward contract. The current spot rate is GBP0.833/EUR and the 90-day forward rate is GBP0.856/EUR. At the end of 3 months, the gilts have risen in value by -2.50% (in GBP terms), and the spot rate is now GBP0.82/EUR. What was the true cost of the forward contract? a. 17.287% annualised. b. 14.787% annualised. c. 7.287% annualised. d. 11.044% annualised. e. None of the options in this question are correct.

Posted Date: May 21, 2024 02:13 AM

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An investment manager based in Germany hedges a portfolio of UK gilts with a 3-month forward contract.

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